The Path to Starting a Startup

I often get asked about what’s the best path to becoming a successful entrepreneur: “Should I go try and start a company now? Or go to grad school? How about working at a large tech company for a few years?”

I spent five years at a large technology company, two years at business school and then two years in consulting before I went to a startup. Even with that experience, I still believe I was too green to jump right in and start a company. It’s not that those experiences weren’t valuable­­­—it’s just that the most valuable learnings for successfully running a startup come from actually working at a well-run startup. I’d go even further to assert that the startup should be based in Silicon Valley and backed by venture capital.

You could just start a company without any startup experience, sure, but you will have a significantly higher chance of success if you already know how to navigate a startup’s unique challenges, including: raising money, changing product direction, and cultivating a culture. These are hard things to learn on the job and you may have only one shot at the crucial “friends and family” round to get you started.

Why a Silicon Valley, VC-backed startup? If you just graduated college, you probably haven’t developed the experience or instincts to judge whether a startup has a great team, a differentiated product or is going after a large enough market. While certainly not perfect, the VCs have done a lot of this important vetting for you, and their decision to invest can be considered a boost of credibility and resources for the company. Also, within each technology region, there is a dense network of specialized talent, financiers, and service organizations (e.g. legal, PR, recruiting) that form a startup ecosystem. Silicon Valley is by far the largest ecosystem and therefore holds the most potential job opportunities and the strongest network.

What about grad school or establishing a foundation at a large company? It comes down to relevance. The responsibilities, roles, contacts, context, culture, communications, risks and instincts you need to develop to eventually run a successful startup are best found at a startup.

If you’re trying to prepare yourself for entrepreneurship— the same two to four years at a startup isn’t even comparable to the equivalent time spent in school or a large company. There’s probably five to ten times more learnings and relevance at the startup.

The next step involves finding the right startup to join. As it turns out, I moved out to Palo Alto from Boston in 1996 with virtually no connections or contacts and over $100,000 in school loans from business school. A few things I did are surprisingly still relevant today:

Prepare for a long haul. You’ll need to move out here without a job while most of your friends have jobs locked up well before graduation. If you don’t have enough savings, you may need to get a part-time job while you job hunt. If this step makes you nervous at all, you may want to reconsider the entrepreneurial job choice. 🙂

Research. Start by downloading the last four venture capital surveys from the San Jose Mercury News website. These PDFs summarize the last year of companies that have been funded by VCs. Included are the company name, amount raised, VC involved and headquarters city. This is a great list to start with because all of these companies have recently raised capital and are therefore likely in hiring mode. Build a spreadsheet, start researching and then rank these companies by your level of interest. Go to the VC websites, check all the online publications (e.g. AllThingsD, TechCrunch, etc.), and look up the company name URLs. While you are on the VC websites, you should look through all of the companies on their “portfolio” tab to see if any should be added to your list.

Focus. There are many different types of startups and many different jobs within a startup. If you can code, there will be obvious roles within engineering, sales engineering or quality assurance. If coding isn’t for you, you’ll need to figure out the best entry-level role to position yourself. Perhaps in customer care, product management, finance, inside sales, or business development. It will also help to choose between the type of startup: enterprise or consumer. The more you begin to focus, the more credible you’ll become as you deep dive into the differences between the roles and the way the different companies go to market. You’ll want to be as knowledgeable as possible before you start networking.

Make a target list. After doing all this research, narrow it down to 20-30 target companies and make a market map or web of every possible link to the company—names of the investors, management team, PR firms—every potential connection (I’m thinking similar to an FBI board targeting a mafia family, but not quite that creepy). Your best chance of getting an interview is if you have a “warm” referral into the company (i.e. someone you’ve met who can refer you to someone inside the company whom they already know). That’s the goal. Continue to research the companies, the roles, the competitors, and the market so that you start sounding like you know what you’re talking about.

Start networking. I pulled out the Harvard Business School alumni directory, the University of Florida alumni directory, and the McKinsey alumni directory. I sent emails to guys 15 years older than me with “Hey Steve, I’m a fellow Florida grad, blah, blah, blah, can we have coffee?” I went to every meet-up that had the word “Stanford” in it. Before I knew it, one coffee led to another and after a while I started asking smarter questions and got stronger referrals.

I cannot overemphasize the importance of preparation and persistence throughout the process. It took me four hard months of preparation, research, focus, list-making and networking until August, 1996, when I received a warm referral into a little, 12-person startup named Hotmail. It ended up being the best job experience of my life and I was completely hooked.